FX Commentary – Risk Of Coronavirus Weighs On Market

Market Talk

  • The yen was supported while the yuan was on the back foot on Wednesday as investors tried to assess the risk of the outbreak of a new coronavirus in China disrupting the country’s economy and trade partners.
  • USD/JPY slipped to 109.86 yen from Tuesday’s high of 110.23. The offshore yuan suffered its biggest fall in more than a month, reaching 6.9178 overnight. The Aussie dollar, often used as a proxy bet on the Chinese economy, fetched $0.6844, near its lowest levels in 10 weeks.
  • News of the coronavirus evoked memories of the 2002/03 outbreak of Severe Acute Respiratory Syndrome (SARS), which killed nearly 800 people globally and led to a sharp downturn in tourism in Asia.
  • Sterling traded at $1.3050, having gained a tad on Tuesday after data showed the British economy created jobs at its strongest rate in nearly a year in the three months to November, which dented expectations of an interest rate cut by the BOE at the end of this month.
  • There was also brighter news from Germany, where the ZEW survey of investor sentiment hit its highest level in over four years in January. That follows a report from Germany’s Bundesbank on Monday which suggested that the key manufacturing sector could bottom out early this year.

Chart Focus USD/CHF
Key Points
1. Trading sell on USD/CHF
2. Sell USD/CHF at 0.9700. Stop at 0.9725 and target at 0.9650
3. Trump’s impeachment and fear of coronavirus pandemic are both likely to favour safe haven Swiss
4. Price inability to crossover resistance and Stochastic likely to turn down from overbought extreme are hints of a possible price decline.

Fundamental Comments
1. Trump’s impeachment could weigh on the US$
2. Fear of coronavirus pandemic could favour safe haven Swiss.

Technical Comments
1. Price inability to crossover the resistance at 0.9700 could lead to a price decline
2. Stochastic is approaching the oversold extreme and could be turning down.

Key Levels

Support 0.96650.96300.9610
Resistance 0.97000.97350.9760

Technical Overview

USD/JPY – Price managed to stay above the important support at 109.70, reaching only a low of 109.75 before bouncing higher. MACD is still bullish and Stochastic is recovering from near the oversold zone. As such, we do not think price will test 109.70 again. Rather we think price is likely to move higher to test the resistance at 110.30 again.

Support 109.70109.40108.95
Resistance 110.10110.30110.65

EUR/USD – Price is back near the low of 1.1080 again despite a good ZEW data. MACD is still bearish and Stochastic has turned down towards the oversold extreme again. Price could test the support at 1.1080 again and a break is likely to lead to a test of 1.1040. If 1.1080 holds, price is likely to test 1.1120 again

Support 1.10751.10401.1005
Resistance 1.11001.11201.1140

GBP/USD – Price broke above 1.3060 last night to reach a high of 1.3083.  MACD is still bullish and Stochastic is still moving higher. We think price may still move higher to test the high of 1.3120 again. Range has been decreasing since the beginning of this year. This could be due to the anxiety on BOE’s decision and Brexit later in the month.

Support 1.30201.29901.2960
Resistance 1.30701.31201.3170

XAU/USD – Price inability to test the Fibonacci 50% and 62% correction points could mean a weak corrective rally is unfolding. This correction may not be over yet. But if price is unable to move above 1569, we could see a continuation of the decline from yesterday to 1535. MACD is neutral and flat but Stochastic is still declining, hinting that the decline may not be over as yet.

Support 1546.201535.801525.20
Resistance 1558.001569.701580.65

AUD/JPY – Price reached a high of 75.65 and our sell order at 75.60 was filled. Price later declined to a low of 75.02 this morning, missing our profit order at 75.00. We would recommend bringing stop lower to 75.40 while keeping profit order at 75.00. MACD is still bearish but Stochastic had reached the oversold extreme is recovering.

Support 75.0074.7074.45
Resistance 75.3075.6575.95

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